Santana Rey has consulted with her local banker and is considering financing an expansion of her business by obtaining a long-term bank loan. Selected account balances at March 31, 2021, for Business Solutions follow. $121,868 Total liabilities $859 Total equity $121,009 Total assets Required: 1. The bank has offered a long-term secured note to Business Solutions. The bank's loan procedures require that a client's debt-to-equity ratio not exceed 0.74. As of March 31, 2021, what is the maximum amount that Business Solutions could borrow from this bank? Note: Round your intermediate calculations to the nearest dollar amount. 2. Assume Business Solutions borrows the maximum amount allowed from the bank. Note: Round your intermediate dollar values to the nearest whole number and final answers to 1 decimal place.
Santana Rey has consulted with her local banker and is considering financing an expansion of her business by obtaining a long-term bank loan. Selected account balances at March 31, 2021, for Business Solutions follow. $121,868 Total liabilities $859 Total equity $121,009 Total assets Required: 1. The bank has offered a long-term secured note to Business Solutions. The bank's loan procedures require that a client's debt-to-equity ratio not exceed 0.74. As of March 31, 2021, what is the maximum amount that Business Solutions could borrow from this bank? Note: Round your intermediate calculations to the nearest dollar amount. 2. Assume Business Solutions borrows the maximum amount allowed from the bank. Note: Round your intermediate dollar values to the nearest whole number and final answers to 1 decimal place.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Santana Rey has consulted with her local banker and is considering financing an expansion of her business by obtaining a long-term bank loan. Selected account balances at March 31, 2021, for Business Solutions follow.
$121,868
Total liabilities
$859
Total equity
$121,009
Total assets
Required:
1. The bank has offered a long-term secured note to Business Solutions. The bank's loan procedures require that a client's debt-to-equity ratio not exceed 0.74. As of March 31, 2021, what is the maximum amount that Business
Solutions could borrow from this bank?
Note: Round your intermediate calculations to the nearest dollar amount.
2. Assume Business Solutions borrows the maximum amount allowed from the bank.
Note: Round your intermediate dollar values to the nearest whole number and final answers to 1 decimal place.
(a) What percentage of assets would be financed by debt?
(b) What percentage of assets would be financed by equity?
1. Maximum amount
2. (a) Percentage of assets
financed by debt
2. (b) Percentage of assets
financed by equity
-%
%
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Step 1: Debt-to-equity ratio:
VIEWStep 2: (1) Determine the maximum amount that Business Solutions could borrow from the bank:
VIEWStep 3: (2.a) Determine the percentage of assets would be financed by debt:
VIEWStep 4: (2.b) Determine the percentage of assets would be financed by equity:
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